Wednesday, March 2, 2016

Budget 2016: Provident Fund to be taxed, unions warn stir

THIS IS IN LINE WITH THE NATIONAL PENSION SYSTEM (NPS), AND OTHER PENSION PLANS WHERE THE GOVERNMENT HAS PROPOSED TO EXEMPT 40 PER CENT OF THE CORPUS FROM TAX AT THE TIME OF WITHDRAWAL.

In a proposal that has evoked strong opposition from employees’ representatives on the Board of the Employees’ Provident Fund Organisation (EPFO), the Finance Minister has proposed to tax 60 per cent of the corpus of the provident fund at the time of withdrawal, on prospective basis. This is in line with the National Pension System (NPS), and other pension plans where the government has proposed to exempt 40 per cent of the corpus from tax at the time of withdrawal. 

Arguing for parity in tax treatment of different pension plans, Budget 2016-17 proposed that only 40 per cent of the accumulated corpus of all contributions made on or after April 1, 2016 by an employee in a recognised provident fund, superannuation fund and NPS, would be exempt from tax. 

“In order to bring greater parity in tax treatment of different types of pension plans, it is proposed to amend section 10 so as to provide that in respect of the contributions made on or after the 1st day of April, 2016 by an employee participating in a recognised provident fund and superannuation fund, up to 40% of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax,” the Budget proposed.

The employees’ representatives on the EPFO Board have, however, threatened to start a nationwide agitation if the proposal is not rolled back. “How can the government justify its decision to tax the accumulated EPF money when the employees have already paid tax on their income? 

This proposal will have to be taken back and we will send immediate representation on this to the Finance Minister. If they don’t roll it back, we will hold a nationwide strike,” said G Sanjeeva Reddy, president, INTUC, and member of the Central Board of Trustees, EPFO. Even the Bharatiya Mazdoor Sangh, which is close to the BJP, expressed opposition.

 Brijesh Upadhyay, national secretary, BMS, said, “This is like taxing the employee two times. We oppose the proposal, and we will take it up with the government.” 

As apprehensions grew over the proposal, in comments posted on Twitter late in the evening, Jayant Sinha, MoS Finance, said, “We have noted concerns about changes in the tax treatment for EPF/PPF/NPS. Full clarification with FAQs will be issued shortly. 

In any case please recognise that we are only talking about prospective changes. Existing savings are not impacted in any way.” While EPF enjoyed Exempt, Exempt, Exempt status at the investment, accumulation and withdrawal stages, the investment under NPS was taxable at the time of withdrawal. 

While the government proposed to exempt 40 per cent of the accumulated corpus under NPS as tax-free, it also decided to bring EPF in line with NPS and reduce its full tax benefit at the time of withdrawal. 

As on March 31, 2015, the EPFO corpus stood at Rs 633,713 crore. However, investments in EPF until March 31, 2016, will not attract any tax at the time of withdrawal.

 Financial planners say that if the proposal goes through, it would no longer be advisable for investors to route the employee component into EPF, as only the employer’s component is mandatory. 

“Since it is not mandatory for employees to invest in EPF, they can avoid this product and opt for other instruments that have the EEE benefit,” said Surya Bhatia, a Delhi-based certified financial planner. 

There are some who feel that the government wants to discourage the selection of financial products based on the tax benefit. “Tax should not be the determining criteria for investing. Parity among products on tax treatment will ensure that those who want to take the equity route can go for NPS, and conservative investors can go for EPF,” said Vishal Dhawan, a Mumbai-based certified financial planner. While the employees’ component to PF is 12 per cent of basic salary and dearness allowance, the employers make a matching contribution, with 8.33 per cent going towards pension, 0.5 per cent towards Employees Deposit Linked Insurance scheme, and the remaining towards provident fund. -
 See more at: http://indianexpress.com/

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